Question

Suppose there are seven firms in a market where the three largest firms supply 20% of the market. The other four firms supply 10% of the market, clearing quantity. What is the firm concentration ratio (i.e., the share of total sales controlled by the five largest firms in the market)?

Answer 1

Answer: The firm concentration ratio of the 5 largest companies in the market is 0.8.

Explanation: we must add the market supply percentage of the 5 largest companies in the market.

The first 3, 20% each.

And the next 2, 10% each.

20% + 20% + 20% + 10% + 10% = 80%

Percentage of the 5 largest companies / 100 = Concentration ratio.

80/100 = 0.8 .